Noah Smith, Economists used to be the priests of free markets—now they’re just a bunch of engineers, Quartz

I have the vague sense that if you were an idealistic, brilliant young libertarian in the 1960s and ’70s, you might naturally dream of growing up to be an economist. You might watch a rousing speech by Milton Friedman, and you might imagine that one day you, too, would use the power of logic and rationality and mathematics to ward off the insanity of socialism. Well, America still has some idealistic, brilliant young libertarians, and some of them probably still dream of becoming economists. But now they will be in the minority. They will be joined by quite a few—maybe more—idealistic brilliant young liberals, who recognize the power of markets but also want to figure out how to fix things when markets go wrong.

And they will also be joined by quite a few brilliant engineers, for whom political ideals take a back seat to the solving of practical, real-world problems. Econ isn’t what it used to be. The world turns, and academic disciplines move along with it.

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In 1989, the great economist Hal Varian declared that economics is a “policy science.” That is ironic, because in 2002, Varian left academia to serve as the chief economist at Google. Nor was the hire a symbolic one. At Google, Varian implemented the system that would end up making that internet titan much of its profit–the system of auctions that powers its online advertising system. Ever wonder why no search engine made Google-like cash in the days before Google? It’s because they didn’t have auction theory. Everyone knows that Google is staffed by brilliant engineers, but it was economists who designed the real secret sauce.

The rise of auction theory has resulted in a boom in private-sector hiring of economists by technology companies (including startups). Auctions are one of those situations in which the “agents” are close to perfectly rational–just the type of case that the theorists of decades past liked to sit around and theorize about. This theory worked. And what works, makes money.

But it wasn’t the only one! Dan McFadden’s “random utility discrete choice” models have seen a wide array of industrial applications, ever since that fateful day when McFadden (who won a Nobel for his efforts) predicted the number of people who would ride the Bay Area’s new BART train, down to a tenth of a percentage point. The “stable matching theory” of Al Roth and Lloyd Shapley (which also earned a Nobel) has helped revolutionize organ donation and school admissions. And of course, Modern Portfolio Theory has helped the finance industry move away from expensive human stock-pickers toward “passive” allocation of capital. 

In other words, as economists find more and more theories that predict how markets actually behave, they’ve moved beyond the policy realm and into the realm of engineering.